Some parents are understandably concerned about how a large inheritance might affect their children.

Bonnie Kraham

Some parents are understandably concerned about how a large inheritance might affect their children.

That concern is more heightened the younger the child is. Eighteen years old might be the official "adult" demarcation line, but being a legal adult and having the maturity to handle large sums of money are two different things.

Considering that many 18-year-olds are just out of high school or even still in high school, it is clear that many are not in a position to manage sophisticated financial situations. Unfortunately, without proper planning ahead of time, it might be difficult to prevent young adults from having significant inheritances dropped in their laps before they are ready for it.

Take, for example, the current legal wrangling around the inheritance given to the daughter of Whitney Houston. Houston died suddenly in February. Her mother and sister-in-law/business manager were named executors of the estate. Virtually all of Houston's assets were left to her daughter, Bobbi Kristina.

In the months since Houston's passing, the executors filed a petition seeking to restructure the inheritance plan. Although Whitney Houston's plan provided for graduated payments to her daughter, the family members in the court case apparently wanted even more protection for the distribution of the money. The petition argues that Bobbi Kristina "is a highly visible target for those who would exert undue influence over her inheritance and/or seek to benefit from (her) resources and celebrity."

The court documents go on to note that there was a clause in Houston's planning documents noting that the intention was to "provide long-term financial security and protection for her child." The case, reported to be settled, raises the ongoing concern of how best to leave inheritances to young people.

The common technique to help manage these situations is the "spendthrift" clause in elder law estate planning documents. Some flexibility exists with these clauses, but the general idea is that they structure inheritances so that a beneficiary does not receive a bulk of assets at one time.

These arrangements are not only appropriate for children of celebrities or the superrich. In fact, they are often worked into the plans for families in a variety of circumstances, including those who have adult children with significant debt, substance abuse issues or other vulnerabilities.

Some parents opt to give the child a distribution stream, akin to IRA distributions, rather than larger lump sums, especially if the child does not manage money well or the child has little financial security for the future.

You can also pass on assets in an inheritance trust rather than directly to your child. The inheritance trust prohibits any outright payment to your child until age 30, but distributions may be made for the child for health, education, maintenance and support. The inheritance is also protected for life from your child's divorces, lawsuits and creditors. On the child's death, the remaining inheritance passes to your blood relatives, usually your grandchildren, and not to in-laws or others.

Bonnie Kraham is an attorney practicing elder law estate planning with Ettinger Law Firm, 75 Crystal Run Road, Town of Wallkill. She can be reached at 692-8700, ext. 119 or at bkraham@trustlaw.com. This column is intended to provide general information, not legal advice.